Win Big, Lose Bigger

by by Alex Ronan

illustration by by Diane Zhou

Financial security,” NightStalker explained, adding “I’d go into more detail, but since you are a college kid, I don’t want to scare you with what the real world has waiting for you.” I was visiting an online lotto forum,, trying to find out why so many people play the lottery, despite the horrible odds. NightStalker didn’t give his real name, but he did explain that freedom from the “daily grind” was his primary motivation for it. “I’m not going to [have to] argue with my wife about spending $500 on a stupid pond in the front yard that no one sees, because I won’t care about what other more important items that $500 could have been spent on,” he added. When it comes to playing, he’s not alone. The North American lottery industry is a $70 billion-a-year business—bigger than music, movie tickets, and porn combined. The lotto often draws low-income players, and sudden wealth isn’t the only appeal of the game. Playing the lottery provides a fleeting sense of power; before the numbers are called, before the card is scratched, luck seems mutable. And with most games coming in at around a dollar a pop, hope comes pretty cheap.

In a sense, the lottery functions as a poor man’s stock market. Involving chance and the possibility of reward, “both [systems] offer people risky monetary returns,” explains Russell Golman, the Director of the Quantitative Social Science Scholars Program and a visiting assistant professor at Carnegie Mellon University. “The difference is the stock market returns, on average, more than investors put in.”  The chances of winning the big jackpot in Mega Millions type games are one in 176 million. Scratch-off games have better odds, but are still largely a money losing proposition. In Illinois, the probability of just breaking even on a scratch-off is one in four at best, so for every $4 you spend, you may get $1 back. “If you only have a few dollars of disposable income, you’re stuck with the lottery,” Golman said. “The lottery thus attracts poor people and has the perverse effect of keeping these people poor.”

A five-year longitudinal study published in the Chicago Reporter compared lottery sales figures around the state with demographic data from the census. The residents of the 10 zip codes with the highest lottery sales had average incomes of less than $20,000 per year. Eighty percent of these zip codes had unemployment rates higher than the city average. It may seem like small change, but regular playing quickly adds up. One zip code, 60619, spent nearly $23 million on the lottery in just one year. And states directly target the poor—past advertising slogans for the Illinois lottery included, “This could be your ticket out,” which was featured on billboards in economically depressed areas. Another campaign promised the lottery was “How to Get from Washington Boulevard to Easy Street.” Washington Boulevard is in Chicago’s Westside neighborhood, which is notoriously poor.

Players on didn’t cite poverty directly, but its corollary, the promise of wealth, was mentioned again and again. According to one commenter, while “most forms of gambling are an attempt to bring in a little extra money,” the lottery has bigger stakes. “Lottery jackpot games offer a way to get out of ‘the trap’ for good. For most working slobs, it’s the only way to make a major score.” Rose, who chose not to give her last name but disclosed that she’s “older than dirt and loving life,” said the lotto dream provides “the escape from the tedium of the daily drudge.” Although they often joked with one another, and professed a love for the lottery, respondents came across as frustrated and embittered with their current financial situation.

Research has shown that when people are made to “feel poor,” they spend more on lotto tickets. A study published in The Journal of Risk and Uncertainty demonstrated that implicit comparisons to other income classes increase poor people’s desire to play the lottery. In one experiment, participants were given $5 for completing a survey and then given the opportunity to spend that money on lottery tickets. Subjects were either made to “feel relatively poor” or “relatively rich” by completing questions that included an item on annual income. Subjects in one group were asked to rank their incomes on a scale that began with either “less than $100,000” and increased from there, intending for most participants to fall into the lowest group, priming them to feel poor. For the other group, the scale began with “less than $10,000” and increased in increments of $10,000, so that subjects would feel wealthier. Those who were made to feel poorer subsequently bought twice as many lottery tickets.

In the second experiment, some participants were indirectly reminded that, while different income groups face unequal prospects in education, housing, and employment, everyone has an equal chance to win the lottery. Participants were more likely to purchase lottery tickets when they received the implicit reminder that the lottery is a “social equalizer.”


Although many spend their disposable income on the lottery, winning may not be so great after all. According to Golman, “hedonic adaptation”— a phenomenon in which people quickly become used to changes, good or bad, in order to maintain a stable level of happiness, suggests that winning won’t provide lasting satisfaction. Wealth offers the opportunity for new and exciting pleasures while simultaneously minimizing joy previously found in mundane activities, a contrast effect that mitigates against a sustained happiness gain by lottery winners. Hedonic adaptation is supported by research. In an August 2010 issue of Psychological Science, an international team of researchers published a study—“Money Giveth, Money Taketh Away”—suggesting that wealth offers us the opportunity to buy more things but simultaneously impairs our ability to truly enjoy them.

Then there’s the oft cited “lottery curse” which suggests that big winners often meet an untimely demise. No study has yet to determine whether the suicides, murders, and kidnappings of lottery winners is statistically significant, but there has been some research on the impact of monetary windfalls. While higher income is associated with better health, the suddenly rich experience, what economists call “positive income shock,” generally leads to more dangerous behavior and poorer health.

Take, for example, Mack Metcalf, a forklift operator, who shared a $34 million Kentucky Powerball jackpot with his ex-wife. Metcalf used his winnings to fill his home with tarantulas, Rottweilers, and a boa constrictor. Three years later, he was dead of hepatitis and cirrhosis of the liver. Or, consider William Hurt, winner of a $3.1 million jackpot in Michigan’s lottery, who relapsed into a cocaine addiction, “literally blowing through his savings,” according to one article. The study on positive income shock, suggests that sudden wealth turns non-smokers into smokers and compels smokers to smoke more. It has similar effects on drinking. While the already-rich have lower mortality rates than everyone else, the suddenly-rich experience the opposite. “At first sight, this looks surprising,” one of the study’s authors, Bénédicte Apouey, told The Daily Beast.  “However, previous macroeconomic research has found that when the economy expands in the US, physical health deteriorates.”


Despite ethical complications, many believe that if people are going to gamble anyway, the state might as well benefit from it. Lottery revenue is divided in three ways: approximately 60 percent goes to the winners; another 15 percent goes to marketing, retailers, and operations; and the remaining 25 percent goes back to the state. In Kansas, some of the money pays for juvenile detention facilities; in Pennsylvania, senior citizen programs; Colorado directs the money to environmental protection. But by and large, funding is directed towards education, with 27 states earmarking some or all of lottery revenue for this purpose.

Yet critics maintain that the lottery functions as a sort of legislative bait-and-switch, wherein money formerly directed to education is simply redirected with the introduction of the lottery revenue. According to this criticism, the lottery doesn’t increase spending on education, but merely changes its source. A study from 1997, when state lotteries were less widespread than they are today, determined that “regardless of when or where the lottery operated, education spending declined once a state put a lottery into effect.” Duke professor Charles Clotfelter, who has authored a book on state lotteries, told CBS News that “it’s very hard to say that these lottery dollars really make a difference.” Other critics are wary of the cost the lottery takes on the poor, likening it to a regressive tax.

In 1996, Congress funded the National Gambling Impact Study Commission (NGISC), which spent two years reviewing the social and economic impacts of gambling. The commission found that an unusually large number of lottery outlets were concentrated in poor neighborhoods and expressed serious concern about government reliance on less-educated, low-income players. Phillip J. Cook, the leading researcher of the study stated, “The tax that is built into the lottery is the most regressive tax we know.”

This issue has recently come to a head in Georgia, where lawmakers are battling over the HOPE college scholarship program. A merit-based scholarship, HOPE is exclusively funded by lottery revenue. Between 2010 and 2011, $679 million was awarded in scholarships. In 2011, 74,278 students received HOPE scholarships. Only 16.5 percent were African American, though they represent 30 percent of the college age population in Georgia. The Georgia Legislative Black Caucus has introduced legislation to correct the socioeconomic disparity of scholarship distributions. New regulations would prevent HOPE scholarships from going to a student whose family earns more than $140,000 annually. According to Sen. Lester Jackson, who authored the bill, most scholarships go to students whose families earn more than $200,000. “We as a state have been bamboozled into thinking that HOPE is attainable to all students when we know that many Georgia citizens in inner cities, in rural Georgia play into the lottery, but their chances of HOPE are miniscule,” Jackson told the Times-Herald.

The legislation further specifies that scholarships should be granted regionally in proportion to the volume of Georgia lottery tickets purchased in the area, which assures that the lottery doesn’t work regressively. Sen. Emanuel Jones, chairman of the Caucus, told The Senate Press that Gov. Nathan Deal was on board with the required audits, which would necessitate reports on the demographic breakdown of both the lottery players and scholarship beneficiaries. But as for the rest of the legislative package, according to Jones, the governor just “said ‘good luck.’”

ALEX RONAN B’13.5 would never spend $500 on a stupid pond in the front yard that no one sees.